Securities and Exchange Commission v. General Electric Company

8/6/2019 Securities and Exchange Commission v. General Electric Company

1/37

UNITED STATES DISTRICT COURT

DISTRICT OF CONNECTICUT

________________________________________________

:

SECURITIES AND EXCHANGE COMMISSION, ::

Plaintiff, : CIVIL ACTION

: NO.

v. :

:

GENERAL ELECTRIC COMPANY, :

:

Defendant. :

:

:

COMPLAINT

Plaintiff Securities and Exchange Commission (the SEC or the Commission)

alleges that:

SUMMARY

1. Starting in 2002 and continuing through 2003, the General Electric

Company (GE), a publicly-traded company headquartered in Fairfield, Connecticut,

acting primarily through senior corporate accountants, made a number of improper

accounting decisions which resulted in its reporting materially false or misleading results

in its financial statements and earnings reports in 2002 and 2003 and which required

additional adjustments through 2006. Beginning in 1995 and continuing through the

filing of the Form 10-K for the period ended December 31, 2004, GE met or exceeded

final consensus analyst earnings per share (EPS) expectations every quarter. On four

separate occasions in 2002 and 2003, however, high-level GE accounting executives or

other finance personnel approved accounting which was not in compliance with


2/37

Generally Accepted Accounting Principles (GAAP) so as to increase earnings or

revenues or to avoid reporting negative financial results. In one instance, the improper

accounting allowed GE to avoid missing analysts final consensus EPS expectations. The

four accounting violations are as follows: (a) beginning in January 2003, an improper

application of the accounting standards to GEs commercial paper (CP) funding

program to avoid unfavorable disclosures and an estimated approximately $200 million

pre-tax charge to earnings; (b) a 2003 failure to correct a misapplication of financial

accounting standards to certain GE interest-rate swaps; (c) in 2002 and 2003, end-of-year

sales of locomotives to financial institutions in order to accelerate over $370 million in

revenue; and (d) in 2002, an improper change to GEs accounting for sales of commercial

aircraft engines spare parts that increased GEs 2002 net earnings by $585 million.

2. By engaging in the practices and transactions alleged in this Complaint,

GE violated Section 17(a) of the Securities Act of 1933 (Securities Act) [15 U.S.C.

77q(a)]; Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange

Act of 1934 (Exchange Act) [15 U.S.C. 78j(b), 78m(a), 78m(b)(2)(A),

78m(b)(2)(B)] and Rules 10b-5, 12b-20, 13a-1, 13a-11, and 13a-13 under the Exchange

Act [17 C.F.R. 240.10b-5, 240.12b-20, 240.13a-1, 240.13a-11 and 240.13a-13].

3. Accordingly, the Commission seeks entry of a permanent injunction

against GE prohibiting further violations of the federal securities laws as well a civil

monetary penalty.

2


3/37

JURISDICTION

4. This Court has jurisdiction over this action pursuant to Section 22(a) of the

Securities Act [15 U.S.C. 77v(a)] and Sections 21 and 27 of the Exchange Act [15

U.S.C. 78u and 78aa].

5. The Commission brings this action pursuant to the authority conferred

upon it by Sections 20(b) and (e) of the Securities Act [15 U.S.C. 77t(b) and (e)] and

Sections 21(d) and (e) of the Exchange Act [15 U.S.C. 78u(d) and (e)].

6. In connection with the conduct alleged herein, GE, directly and indirectly,

made use of the means or instrumentalities of interstate commerce, the mails, the

facilities of national securities exchanges, and/or the means and instruments of

transportation or communication in interstate commerce.

DEFENDANT

7. GE, a New York corporation with headquarters in Fairfield, Connecticut,

is a diversified technology, manufacturing, media, and financial services company. At all

relevant times, GEs common stock was registered with the Commission pursuant to

Section 12(b) of the Exchange Act and was traded on the New York Stock Exchange.

GE wholly owns General Electric Capital Services, Inc. (GECS), a holding company

which in turn wholly owns General Electric Capital Corp. (GECC). GECC contains

the consumer finance and commercial finance operations of GE and also provides

equipment financing and leasing to a variety of industries. GEs fiscal year ends on

December 31.

3


4/37

THE VIOLATIONS

I. GEs Improper Treatment of CP Hedging

8. In the period from January 2001 though December 2006, GE used hedge

accounting to account for interest rate swaps held for the purpose of hedging interest rate

exposure on its CP issuances, resulting in smoother reported earnings. In late 2002 and

early 2003, GE learned that continuing to apply its existing hedge accounting method for

its CP program would require it, among other things, to report certain fluctuations in the

value of its CP interest rate swaps. Rather than reporting these fluctuations, however, GE

changed the hedge accounting approach it used in a way that it knew or was reckless in

not knowing did not comply with accounting rules.

9. Specifically, in early 2003, GE changed its CP hedge accounting approach

(1) to avoid reporting a disclosure that might have led to the loss of hedge accounting for

its entire CP program and (2) to avoid recording what GE estimated to be an

approximately $200 million pre-tax charge to earnings. For months prior, GE had sought

to solve its CP hedge accounting issues with proposals based on its established CP

hedging approach. None of the proposals permitted GE to avoid certain potentially

harmful disclosures. Just days before GEs quarterly financial data was to be released in

early 2003, however, GE developed an entirely new approach that, when applied

retroactively to transactions that occurred months before, allowed GE to obtain the

desired accounting results and avoid required disclosures that GE personnel feared could

be harmful. The new approach violated GAAP. As a result, GE improperly overstated

earnings in the fourth quarter of 2002 by an amount in excess of 5%, and thereby met its

revised consensus EPS estimates. From 1995 through December 31, 2004, GE had met

4


5/37

or exceeded final EPS expectations every quarter, in some cases after downward

revisions during the quarter.

10. Application of the new approach resulted in the publication of materially

false statements and materially false omissions in GEs Form 10-K filed with the

Commission in March 2003 for fiscal year 2002.

A. GEs Original Approach to CP Hedging

11. At all relevant times, GE issued CP. CP is an unregistered, unsecured

commitment to pay the CP purchaser an agreed principal amount at an agreed rate of

interest on a given maturity date. In exchange for this commitment, the purchaser pays

cash to the issuer on the date of the CP issuance. GEs CP maturity dates ranged from 1

to 270 days.

12. GE used the proceeds from its CP issuances to fund many of its financial

assets, such as loans or leases. Many of those financial assets had long, fixed-term

interest rates. Because the rolling CP issuances exposed GE to fluctuating interest rates

over time, funding those fixed assets with the proceeds of CP issuances exposed GE to

interest rate risk.

13. To hedge the risk, GE entered into corresponding interest-rate swaps with

third parties, which effectively converted the variable rate CP interest payments into

fixed rate interest payments and reduced GEs exposure to changing interest rates.

14. Financial Accounting Standards Board Statements of Financial

Accounting Standards No. 133,Accounting for Derivative Instruments and Hedging

Activities (FAS 133) governs the accounting for derivative financial instruments such

as interest-rate swaps. It generally requires that instruments meeting the definition of

5


6/37

derivatives, including interest-rate swaps, be recorded at their fair value, and that any

changes in their fair value be reported in earnings on a quarterly basis. Given these

requirements, fluctuating values of interest rate swaps could cause a company to

experience significant earnings volatility.

15. To allow companies to address this volatility, FAS 133 permits special

hedge accounting for certain hedge relationships provided specific criteria are met.

One type of hedge accounting cash flow hedge accounting allows an issuer to keep

certain changes in the fair value of its derivatives from being reflected in earnings.

Specifically, if certain criteria are met, FAS 133 allows issuers to instead measure and

record on their balance sheets the difference between the value of the derivative (i.e., the

interest-rate swap) and the value of the underlying hedged risk ( i.e., the interest on the

floating rate debt), which is referred to as the ineffectiveness of the hedge. This

approach generally results in less volatility in earnings.

16. In order for an issuer to qualify for hedge accounting, FAS 133 requires,

among other things, that the issuer comply with two principal requirements: (1) a

documentation requirement and (2) a specificity requirement.

17. In connection with the documentation requirement, an issuer must create

what is known as hedge documentation at the inception of the hedge relationship. This

official written documentation must describe, among other things, the risk being hedged,

the date the future transactions to be hedged are expected to occur (known as forecasted

transactions), and the strategy that will be used to identify the forecasted transactions.

The entity must follow the terms of this documentation throughout the life of the hedge

and may not substantively alter it. If the documentation is not followed, the entity loses

6


7/37

the special hedge accounting and must record the fluctuations in the value of the hedge

going forward.

18. The specificity requirement means that the issuer must describe the

forecasted transaction in the issuers documentation with sufficient specificity such that

when a transaction occurs, it is clear whether the transaction is a hedged transaction.

19. FAS 133 also provides that to qualify for hedge accounting, the forecasted

transactions must be probable of occurring. FAS 133 provides that a pattern of failed

forecasted transactions could disqualify an entity from using cash flow hedge accounting

for similar forecasted transactions.

20. For GE, FAS 133 became effective on January 1, 2001. By this date, GE

had developed a methodology to hedge the variable interest rates it paid on the CP it

issued.

21. GE divided the CP it expected to issue into groups or buckets based on

the CPs average maturity dates (i.e., CP which matured between 8-74 days had an

average maturity date of 30 days), and entered into interest-rate swaps with a reset date of

the same duration (i.e., a 30 day swap) which it used to hedge a portion of that

corresponding bucket of CP.

22. GEs original intent, as reflected in its hedge documentation, was to group

the CP into buckets that had fixed parameters. These parameters were established based

on GEs historical issuances of CP with the goal of having the CP issued in a bucket in a

given period exceed the value of the corresponding swaps, in which case there would be

no failed forecasted transactions.

7


8/37

23. GEs hedge documentation contained a table describing the parameters of

the CP buckets. More specifically, the documentation for GEs U.S. dollar CP stated:

The maturity buckets are as follows:

Bucket Weighted-Average

1-7 Day 2 Days

8-74 Day 30 Days

75-120 Day 93 Days

121-174 140 Days

174+ 176 Days

24. If, for a particular bucket of CP, the size of the interest-rate swaps

exceeded the amount of CP issued in a period, GE would be overhedged, meaning

certain forecasted transactions (i.e., the issuances of CP to be hedged) would not have

occurred. In this situation, GE would have failed forecasted transactions.

25. From January 2001 through mid-2002, GE accounted for its CP hedging

program in a manner consistent with the fixed bucket parameters set forth in the table of

its hedge documentation.

B. Application of GEs Original Method Results in Overhedgeswith Negative Accounting and Disclosure Ramifications

26. In or about the fall of 2002, GE realized that, due to changes in market

conditions and its corporate funding strategy, it had issued insufficient CP in multiple

consecutive periods in 2002 to cover the interest-rate swaps that it was using to hedge

two buckets of CP identified in its documentation (U.S. dollar CP in the 30-day bucket

and Australian dollar CP in the 30-day bucket). This meant that certain forecasted

transactions had almost certainly failed to occur (i.e., GE had attempted to hedge CP that

had not been issued).

8


9/37

27. In early November 2002, GECC personnel proposed to senior personnel in

GEs corporate accounting group that GE borrow CP from other buckets described in

the documentation to make up for shortfalls in the deficient buckets. By using CP from

other buckets, the personnel suggested, GE could still claim that all forecasted

transactions were probable of occurring and they could avoid having failed forecasted

transactions.

28. In November and December 2002, the borrowing approach was rejected

by both GEs outside auditor and members of GEs internal audit staff (Corporate Audit

Staff). Members of the Corporate Audit Staff believed, among other things, that (1) the

buckets of CP described in the original documentation were required to be used when

identifying the subsets of CP to be hedged; (2) CP from other buckets could not be used

to supplement a shortfall; and (3) GE had experienced an overhedge of U.S. dollar CP in

the second and third quarters of 2002. As GE became aware, GEs outside auditor also

rejected the borrowing approach, similarly concluding it was not consistent with the

existing hedge documentation because the documentation did not provide for borrowing

among buckets.

29. At GEs request, GEs outside audit team asked its national office whether

failed forecasted transactions had to be disclosed publicly, and also whether any amounts

reclassified to earnings as a result of those failures also had to be disclosed irrespective of

their quantitative materiality. The outside auditors national office confirmed that both

the fact of the failures and the amounts reclassified to earnings as a result were items that

required disclosure.

9


10/37

30. In a December 17, 2002, email to senior GE accounting personnel, a GE

accountant described how the borrowing approach was inconsistent with GEs existing

documentation. The email went on to explain that the outside auditors and GECC

personnel had both concluded that there were failed forecasted transactions in the U.S.

dollar 30-day bucket. The email described a similar overhedge issue in the Australian

dollar 30-day bucket.

31. A senior accountant in GEs corporate accounting group responded the

next day as follows:

How do we intend to deal with the SEC one strike and youre out position?Doesnt this mean that potentially we can no longer qualify for cash flowhedging??? Urgent that you find disclosures of others who have had cash flowfailures. Isnt this an extraordinarily big deal?

The reference to the SEC one strike and youre out position concerned a December

2000 speech given by an SEC accounting fellow discussing how a pattern of failed

forecasted transactions might negatively impact the ability to perform similar hedges in

the future.

32. Lost CP hedge accounting for GE would have forced GE to either (1)

continue hedging CP but record future volatility in earnings; (2) continue to issue CP

without hedging; or (3) find some other source of financing (such as longer-term debt at

higher financing costs) to fund its fixed rate assets.

33. Soon after sending the above email, the same GE accountant wrote

another email, stating: I just went back to the SEC speech on this point, and dont see

any flexibility whatsoever. Weve got to fix this.

34. Thereafter, GE personnel continued to seek solutions to solve the

overhedge problem. By late December 2002, GE realized that FAS 133 allowed

10


11/37

forecasted transactions to occur up to 60 days after the date they had been expected to

occur. In other words, a forecasted transaction that occurred within this 60-day window

was not a failed forecasted transaction under FAS 133. Application of the 60-day

window cured the shortfalls in the U.S. dollar 30-day bucket, but not those in the 30-day

Australian dollar bucket.

35. GE continued to be concerned about failed forecasted transactions in the

Australian dollar program and the potential ramifications that could flow from a

disclosure of those failures. Throughout the end of December 2002 and into the early

part of January 2003, GE personnel explored multiple additional solutions to its

Australian dollar overhedges, all of which were rejected either internally or by GEs

outside auditors.

36. On January 4, 2003, a GECC accountant informed members of GEs

corporate accounting group in an email that they had not been able to come up with a

solution to the Australian CP overhedges. As a result, he stated, there were failed

forecasted transactions in that program, and the issue of disclosure in the annual report

would need to be discussed.

37. On or about January 5 or 6, 2003, an outside auditor engagement partner

informed the GECC accountant that although the 60-day window had cured the

overhedges in the U.S. dollar program such that there were no failed forecasted

transactions, FAS 133 required that GE nonetheless de-designate the hedge for that

portion of the swap that did not occur as of the date they had originally expected to occur.

As a result, GE would lose hedge accounting for that portion of the hedge and would be

11


12/37

required to record changes in the swaps fair value in earnings for the current period and

going forward.

38. At the time, GE estimated that it would be required to immediately record

a pre-tax charge of approximately $200 million.

C. GE Develops a New Methodology to Avoid

Accounting and Disclosure Ramifications

39. At a meeting late in the evening of January 6, 2003, GE personnel

developeda new interpretation of the existing hedge documentation in an effort to avoid

the conclusion of failed forecasted transactions and the corresponding pre-tax charge.

Instead of using the buckets of CP defined by the parameters described in the

documentation to determine which CP interest payments were being hedged, GE would

use groups whose parameters changed or floated from reporting period to reporting

period, depending on how much CP was issued in the period. This approach meant that

GE would never be overhedged unless it failed to issue an amount of CP in a given

currency that at least equaled the total swap value outstanding in the currency. To get

around the table with the fixed parameters described in the documentation, GE

accounting personnel, advancing a variation on an argument that had been made

previously and rejected by GEs outside and internal auditors, asserted that that the

parameters described in the documentation were merely illustrative and indicative only

of what the groups would have been at a particular point in time.

40. Under this proposed floating bucket methodology, GE would change the

bucket parameters until it had enough CP in the group to match the size of the swaps

hedging the group. Under this approach, GE would not know until after the period (i.e.,

after 30 days for the 30 day grouping) what CP was being hedged, which meant that GE

12


13/37

would not be able to identify the hedged interest payments until after some interest

payments had already occurred.

41. The creation of parameters after some of the hedged interest payments had

already occurred did not satisfy the specificity requirements of FAS 133. In addition, this

methodology conflicted with the GE hedge documentation, which, among other things,

contained no mention of CP parameters floating or changing from period to period,

contained a table with fixed bucket parameters, and described the CP in the buckets

actually being hedged as a subset of the total CP in the bucket. For these reasons, this

methodology was not compliant with FAS 133 or GAAP.

42. The next day, a senior GE accountant emailed a GECC accountant,

asking:

Are you engaged in the cp hedge effectiveness issue? This is a potentially hugeissue with big p&l effect . . .

43. Later that day, an email from a member of the Corporate Audit Staff

described the new floating bucket methodology. First, in discussing the previous

proposal to apply a 60-day window to the fixed buckets contained in the hedge

documentation, the internal auditor stated:

this was the one to go with until today . . . but when the initial quantification gotfinished today, it showed a $(200MM) or bigger hit would have to be considered,and [GECC] is now reconsidering and contemplating [the floating bucket]interpretation [].

Under a section entitled Challenge, the internal auditor went on to state:

documentation that exists (that has been created) says that the buckets are definedin a specific way (e.g. there is a 8-74 day bucket), and the documentation cant bechanged, and FAS 133 says that the hedged forcast [stet.] transaction shall bedescribed with sufficient specificity (e.g. 8-74 days bucket, as treasury did), sothat when a transaction occurs it is clear whether the transaction is or is not the

13


14/37

hedged transaction . . . if treasury now makes the borders of the buckets flexible,this might not fly with the existing documentation

* [Outside auditors] . . . looking into this, and might struggle to agree with this . . .might come back with similar concern that they had when business said

[groupings] dont exist/documentation and policy are illustrative [stet.]

44. On January 8, 2003, at a meeting attended by senior corporate accounting

personnel at GE and members of GEs outside auditor, GE explained the new

methodology. Notwithstanding the language in GEs hedge documentation, during the

presentation GE personnel asserted that (a) the bucket parameters in the official hedge

documentation were intended to be for illustrative purposes only and (b) GEs original

intent was for those parameters to be flexible or to change.

45. At the meeting, GE distributed and reviewed a powerpoint presentation

which described the following risks associated with the new method: (a) the specificity

requirement of FAS 133 might not be satisfied; (b) the official hedge documentation,

which contained predefined parameters, might not be consistent with the new

methodology; and (c) the methodology could be subject to future debate and second

guessing. The presentation also described how application of the original methodology

would result in (a) failed forecasted transactions through December 2004 in the

Australian dollar program and (b) an approximately $200 million pre-tax charge in the

U.S. dollar program that had to be recorded immediately.

46. By the end of the meeting, GE approved the application of the new

methodology subject to further review of GEs hedge documentation by GEs outside

auditor.

47. On January 9, 2003, the outside auditor sent an email to senior GE

accountants listing the outside auditors concerns with the new floating bucket

14


15/37

methodology. The concerns included (a) that it could be inferred that the parameters

were fixed as set forth in the table in the hedge documentation; (b) that the

documentation did not appear to support a key tenet of the new methodology, namely that

the size of the CP bucket would always be equal to the amount of the swaps; and (c) that

the new approach did not satisfy FAS 133s specificity requirements.

48. Senior GE accounting personnel drafted responses to outside auditors

concerns. Notwithstanding the language of GEs hedge documentation to the contrary,

the responses indicated that the parameters set forth in the documentation were for

illustrative purposes only and only intended to be applicable if the total notional of

swaps exceeded the total CP in the program. Similarly, notwithstanding the language of

GEs hedge documentation to the contrary, the responses also stated that the groupings in

the hedge documentation were provided as an example of what the maturity buckets

could be at a point in time. In addition to the lack of support in the documentation,

there was no basis for these responses in any other contemporaneous documents.

49. Soon thereafter, GE began applying the new floating bucket

methodology to its CP program. As part of that application, GE chose to apply it both (a)

on a going-forward basis and (b) retroactively to CP issuances that occurred from January

2001 through the end of 2002. GEs retroactive application of this methodology

permitted GE to avoid having to disclose failed forecasted transactions in its Forms 10-K

filed with the Commission for fiscal year 2002, and also avoided it having to record a

corresponding pre-tax charge that GE estimated to be $200 million. Prior to its

utilization, neither GE nor its outside auditors sought to bring the new methodology to

the outside auditors national office for its review.

15


16/37

50. On January 17, 2003, GE released its 2002 earnings and announced

quarterly and annual EPS amounts that were precisely in line with revised consensus

analyst expectations for GE.

51. On March 7, 2003, GE filed its Form 10-K with the Commission for fiscal

year 2002. The form included the following false statement relating to derivative

transactions: In 2002, there were no forecasted transactions that failed to occur. The

filing did not disclose that forecasted transactions had failed to occur. By improperly

changing its CP hedging methodology, GE also overstated its annual and fourth quarter

2002 pre-tax profits by approximately $200 million. Given GEs 2002 effective tax rate

20.2%, GE overstated its net income by approximately $160 million as a result of the

new approach. Because GE originally reported a fourth quarter 2002 net income figure

of $3,102 million, the improper change of methodology resulted in GE overstating its

fourth quarter 2002 net income by an estimated 5.4%. In addition, the estimated pre-tax

charge of approximately $200 million that GE avoided by switching CP hedging

methodologies would have caused GE to miss its quarterly and annual consensus EPS

estimates by approximately 1.5 cents. At the time, GE had last missed final consensus

EPS estimates in 1994, some eight years beforehand.

52. On January 19, 2007, GE announced that the staff of the Commissions

Office of Chief Accountant had concluded in December 2006 that GEs CP hedging

program as structured did not meet FAS 133s specificity requirements. As a result, GE

stated that it was amending its 2005 Form 10-K to restate its financial statements for the

years 2001 through 2005, and that it was also amending its Forms 10-Q for each of the

first three quarters of 2006, to eliminate hedge accounting for the interest-rate swaps

16


17/37

entered into as part of GEs CP hedging program from January 1, 2001 (CP

Restatement).

II. Improper Shortcut Treatment Under FAS 133 for Swaps with Fees

53. Under FAS 133, an issuer seeking hedge accounting must assess

effectiveness of the hedge, both at the inception and prospectively, and measure and

recognize any ineffectiveness on a periodic basis (at least every three months). FAS 133,

however, also provides for an exception to the assessment and measurement requirements

for hedge accounting. This exception permits an entity to assume that the hedge

relationship is perfectly effective as long as certain additional criteria are met. The

exception, referred to as shortcut, significantly reduces the on-going effort necessary to

achieve hedge accounting by minimizing or eliminating the need to measure

ineffectiveness periodically.

54. Early in 2003, a GECC accountant became aware that GE was designating

certain interest-rate swaps which included fees paid or received at their inception as

shortcut swaps under FAS 133. Recognizing that the existence of those fees in the

swaps almost certainly rendered them ineligible for shortcut treatment under FAS 133,

GE (a) discontinued its practice of entering into swaps with fees going forward and (b)

also notified GECC personnel that any swaps with fees actually entered into in the future

would not be granted shortcut treatment.

55. Despite these changes, GE did not correct the accounting for past swaps

with fees that had already improperly received shortcut designations. Doing so would

have required GE to go back and record the fluctuations in value for those swaps since

their inception. GE personnel knew or should have known that the shortcut designation

17


18/37

was not appropriate for swaps with upfront fees and that hedge accounting was therefore

inappropriate. GE should therefore have corrected the accounting for past swaps with

fees that had been improperly designated as shortcut transactions.

56. On May 6, 2005, GE filed an amended Form 10-K for the fiscal year

ended December 31, 2004 to restate its financial statements for the years 2002 through

2004, and certain financial information for the year 2001 and each quarter in 2003 and

2004. The restatement reversed the effects of incorrect hedge accounting under FAS 133

for the improperly designated short cut transactions during the restated periods.

Cumulatively, from 2001 through the first quarter of 2005, the restatement had the effect

of increasing GEs reported net earnings by $381 million. The restated results reflected

significantly increased volatility from quarter to quarter. For example, the restatement

had the effect of increasing GEs 2003 reported net earnings in the first and second

quarters by 9.6% ($287 million) and 11.9% ($450 million), and decreasing reported net

earnings by 12.2% ($446 million) in the third quarter.

III. Improper Recognition of Revenue from

Locomotive Bridge Financing Transactions

57. In the fourth quarters of 2002 and 2003, GE improperly recorded revenue

of $223 million and $158 million respectively for locomotives purportedly sold to

financial institutions with the understanding that the financial institutions would resell the

locomotives to GEs railroad customers in the first quarters of the subsequent fiscal years.

The six transactions were not true sales and did not qualify for revenue recognition under

GAAP. GE personnel at the business level orchestrated these transactions in order to

improperly accelerate revenue recognition. A member of GEs corporate accounting

group approved the accounting for these transactions despite learning that GE maintained

18


19/37

significant obligations that: (1) suggested that the risks of ownership for the locomotives

had not passed and (2) should have precluded revenue recognition under GAAP.

A. The 2002 Bridge Financing Transactions

58. In the spring of 2002, certain business personnel in GEs Transportation

Systems unit (GETS), assisted by members of GEs Capital Markets group, explained

to a senior accountant in GEs corporate accounting group that GETS expected to sell a

significant number of locomotives to railroad end users in the fourth quarter of 2002, but

that the railroads might ask to delay those purchases until the first quarter of 2003. The

business team proposed that GE resolve this issue by selling the locomotives to financial

intermediaries in the fourth quarter of 2002 and having the financial intermediaries then

resell the locomotives to the railroads in the first quarter of 2003.

59. The proposed structure was very similar to a financing arrangement.

Under it, the financial intermediaries would profit not by selling the locomotives to the

railroads at a higher price, but by charging GE certain fees. In most of the transactions

that resulted, these fees were based on (1) an upfront commitment fee paid by GE to the

financial intermediaries and (2) a London Interbank Offered Rate (LIBOR)-based interest

charge on GE for each day between the purchase of the locomotives from GE and the

subsequent sale of the locomotives to the end user railroads. During the May 2002

meeting and at subsequent meetings, these transactions were sometimes referred to as

bridge financings.

60. Under GAAP, revenue generally cannot be recognized on a product sale

unless delivery of the product has occurred. Delivery is not considered to have occurred

unless the customer has taken title and assumed the risks and rewards of ownership.

19


20/37

61. In May 2002, the senior accountant in GEs corporate accounting group

expressed concern about recognizing the revenue in the fourth quarter upon the proposed

sales of locomotives to financial intermediaries.

62. In December 2002, the business team reported to the senior accountant

that GE would store the locomotives on GE property until they were delivered to the

railroad end users. At the time, the senior accountant was aware that while on GEs

property, GE would be required to (a) run the locomotives in idle to prevent damage from

the cold; (b) fuel and monitor the idling locomotives; and (c) provide security to the

locomotives.

63. On December 16 and 17, 2002, the business team met again with the

senior accountant and told him that, under the bridge financing agreements with the

financial intermediaries, GE was involved in the financial intermediaries resale of the

locomotives to the railroads. First, if the railroads did not timely pay the financial

intermediaries, GE was obligated under its agreements to pay the financial intermediaries

a penalty fee calculated as a percentage (from 5-7.5% per annum) of the outstanding

balance from the day the railroads payment was due until it had been paid in full.

Second, GE had agreed to indemnify one of the railroad end users for the possible tax

consequences of the transaction that could result to the railroad after it purchased the

locomotives from the financial intermediary. If the indemnification provision were

triggered, the cost to GE would be anywhere between $2 to 4 million. In addition, the

business team also told the senior accountant that the financial intermediaries were

responsible for the costs of storing and insuring the locomotives while the intermediaries

owned the locomotives.

20


21/37

64. Notwithstanding their awareness of these terms of these rail transactions,

members of the corporate accounting group permitted GE to recognize the revenue and

income on these deals in the fourth quarter of 2002.

65. In its Form 10-K filed with the Commission on March 7, 2003, GE

included the revenue and operating profit for the 2002 bridge financing transactions in

both the reported results for GETS and in the consolidated GE financial statements for

the fourth quarter and fiscal year 2002. These transactions accounted for 131 of the 191

locomotives purportedly sold by GETS in the fourth quarter of 2002 (68.6%); $223

million of the $717 million in reported quarterly GETS revenue (31.1%); and $38 million

of the $134 million in reported GETS operating profit (28.4%). Inclusion of these

transactions significantly overstated the performance of the GETS business in the fourth

quarter of 2002, with GETS revenues and profits being overstated by 45.1% and 39.6%

respectively.

B. GEs Audit Staff Raises Revenue Recognition Concerns

66. In the first few months of 2003, Corporate Audit Staff conducted an audit

of the GETS business and identified certain provisions of the bridge financing

transactions which called into question whether GE had transferred ownership risks to the

financial intermediaries. The first was the penalty clause, which had been previously

disclosed to GEs corporate accounting group in December 2002. In addition, Corporate

Audit Staff discovered that, in several side letters and verbal agreements, GE had agreed

to reimburse the financial intermediaries for their cost of storing and insuring the

locomotives during their ownership of the locomotives. Contemporaneous documents

indicate that the business team had requested that the financial intermediaries avoid

21


22/37

explicitly stating in their invoices that GE was paying for the costs of storage and

insurance for fear of negatively impacting GEs revenue recognition in the quarter.

67. In mid-March 2003, Corporate Audit Staff elevated the two issues to the

senior accountant that had been most involved in approving the revenue recognition on

the transactions, expressing concern that the penalty provisions and reimbursement

agreements might preclude revenue recognition. The senior accountant had been aware

of the penalty provisions but not the reimbursement agreements; however, this new

information did not cause him to change his decision to recognize this revenue.

C. The 2003 Bridge Financing Transactions

68. In 2003, the business team againpresented year end rail transactions to the

same senior accountant. The purpose, terms, and structure of the 2003 transactions were

to be the same as in 2002 except for one difference. For the 2003 deals, the business

team would try to negotiate removal of the penalty fee. By the end of 2003, however, the

senior accountant learned that GE had, in fact, failed to remove the penalty clause from

one of the 2003 rail transactions. GE again entered into side letters to reimburse the

financial intermediaries for the costs of storage and insurance.

69. In December 2003, the business team informed the senior accountant that

the financial intermediaries had requested that GE represent that the rail transactions had

been disclosed to GEs outside auditor and accounted for in accordance with GAAP.

When he asked why the financial intermediaries were seeking the representation, the

senior accountant was told they were concerned about their risk of liability for helping

influence another companys financial statements in the wake of a recently reported

financial scandal. As in 2002, notwithstanding the above, GEs corporate accounting

22


23/37

group permitted GE to recognize the revenue and income on the year-end rail deals in the

fourth quarter of 2003.

70. In its Form 10-K filed with the Commission on March 1, 2004, GE

included the revenue and operating profit for the 2003 bridge financings in the fourth

quarter and fiscal 2003 financial statements for both GETS and GE. For the fourth

quarter of 2003, the rail transactions accounted for 92 of the 215 locomotives purportedly

sold (42.8%) by GETS; $158 million of the $857 million in GETS revenue (18.4%); and

$24 million of the $168 million in GETS operating profit (14.3%). Inclusion of these

transactions significantly overstated the performance of the GETS business in the fourth

quarter of 2003, with GETS revenues and profits being overstated by 22.6% and 16.7%.

D. GE Concludes That Year-End Rail Transaction

Revenues Were Inappropriately Accelerated

71. On July 27, 2007, GE reported in its Form 10-Q filed with the

Commission for the quarter ended June 30, 2007 that the revenues from the year-end rail

transactions had been inappropriately accelerated into the fourth quarters of 2002 and

2003 when they should have been recognized in the first quarters of the following years.

GE concluded that revenue recognition in the fourth quarters was inappropriate because

GE transferred locomotive titles but not sufficient substantive risks and rewards of

ownership to financial intermediaries. GE adjusted its historical financial statements and

admitted that the revenues and profit for the reported business segments containing the

year-end rail transactions were overstated by 8.8% and 14.6%, respectively, in the fourth

quarter of 2002 and overstated by 22.6% and 16.7%, respectively, in the fourth quarter of

2003.

23


24/37

72. GEs improper recognition of revenue and profit for the bridge financings

in the fourth quarters of 2002 and 2003 resulted in the public dissemination of false and

misleading financial information in Commission filings and other communications.

Inclusion of revenues and profit for these transactions in the fourth quarters of 2002 and

2003 violated GAAP (a) because risk of loss did not properly transfer and (b) GE

maintained significant continuing performance obligations that precluded revenue

recognition.

IV. The Aircraft Engine Spare Parts Error

73. In March 2002, GE changed how it accounted for its sale of commercial

aircraft engine spare parts in two ways. First, GE removed sales of spare parts from a

model used to account for sales of aircraft engines that resulted in an immediate $844

million charge to revenue. Second, to offset that charge and to avoid disclosure of its

original accounting, GE simultaneously made a second, related change to another

accounting model. That second change did not comply with GAAP. GEs error

improperly overstated GEs 2002 net earnings by approximately $585 million.

A. The Revenue Accounting Model for Aircraft Engine Sales

74. Beginning in 1992, GE applied an accounting model, known as RAM

(Revenue Accounting Model), to its sales of new commercial aircraft engines. Applying

this model, GE levelized margins within its commercial aircraft business by combining

low margins from aircraft engine sales with high margins from the expected future sale of

spare parts/spare engines for those aircraft, recognizing an average margin in its

earnings for a set time period. To account for the acceleration of the margin recognized

on as-yet unsold spare parts, GE maintained on its balance sheet a deferred charge

24


25/37

balance (reported as an other asset) equal to the amount of income it accelerated using

RAM. The deferred charge balance was amortized over time to reduce recognition of

profit on future spare parts and spare engine sales in an amount equal to the profit

reduction on those sales.

75. Beginning in at least 1999, GE became concerned that RAM might not

comply with GAAP. If the model was not compliant with GAAP and GE had to correct

the accounting, GEs pre-tax income would be immediately negatively impacted by the

amount in the deferred charge balance, at the time approximately $1 billion, which would

instead have to be recognized over the life of an aircraft engine as spare parts were sold

to customers. In early February 1999, a senior accountant in GEs corporate accounting

group sent a powerpoint describing GEs outside auditors view that, if GEs practice of

recognizing margin on spare parts pursuant to RAM Was Observed and Challenged [it

is] . . .Virtually Assured We Would Lose. In mid to late 1999, with no objection from

its outside auditors, GE decided to continue to recognize revenue on spare parts pursuant

to RAM. To minimize the impact if the SEC were to determine that RAM was invalid

and to force a restatement, GE funded a $106 million write down of the deferred charge

balance in an effort to keep it from increasing.

76. In early 2001, GEs proposed acquisition of another entity presented an

opportunity to end GEs RAM accounting in a way that would avoid public disclosure of

the practice. A January 2001 document stated that pooling [in connection with the

acquisition] was a one-time opportunity to cure RAM. The document stated that

RAMs accounting justification [was] crumbling based on expected GAAP changes in

2001 and 2002, and that the $1 billion unexplained balance in GEs [deferred charge

25


26/37

balance] could draw the attention of the SEC and would not survive. The powerpoint

implied that such a change could be accomplished without having to make a disclosure.

B. GEs Accounting for Spare Parts Sales

in Customer Service Agreements

77. In 2001, at the same time the RAM issue existed, a separate issue arose

relating to GEs recognition of profit margin on spare parts. Specifically, a GE business

unit which sold aircraft engine spare parts to customers pursuant to customer service

agreements or CSAs learned that it was paying a higher internal price to GEs parts

distribution business for engine parts than certain third parties were paying GE for the

same parts. In 2001, the business unit complained internally that paying the higher

catalog list price put it at a competitive disadvantage with customers and argued that it

should pay the lower market price which GE charged third parties.

78. There was a potential accounting effect to making such a change. GE had

recognized revenue from CSAs on a cost percentage of completion basis. Under this

method, GE estimated the total costs and profits of each agreement; calculated the

percentage of total costs incurred as of a particular date; and recognized revenue

proportionate to the costs incurred as of that date. Through the end of 2001, the CSA

business paid to GEs parts distribution unit the catalog list price for the parts.

79. Individuals at GE initially suggested if the CSA business paid a lower

price for parts, pursuant to the cost percentage of completion method, the total costs on

the contract would decrease, the percentage of total costs incurred to date would therefore

increase, and the corresponding revenue that GE could recognize would increase. GE

accountants estimated that making the internal pricing change would cause an immediate

26


27/37

acceleration in revenue and profit, referred to as a cumulative catch up, of

approximately $140 million.

80. In a November 12, 2001 email, a senior GE corporate accountant rejected

the idea, remarking correctly that it was not possible to affect GEs consolidated earnings

through an internal price change. Under GAAP, as consolidated statements are based on

the assumption that they represent the financial position and operating results of a single

business enterprise, such statements should not include gain or loss on transactions

among the companies in the group. Accordingly, any intercompany profit or loss on

assets remaining within the group should be eliminated.

C. GEs Corporate Accounting Group Creates An

Offset to the RAM Change to Avoid Disclosure

81. Shortly after rejecting the proposal to accelerate revenue from the internal

price change, the same senior GE accountant proposed to link a similar internal price

change to the elimination of RAM accounting for spare parts. The principal motive for

the offset proposal was to be able to discontinue using RAM to account for sales of spare

parts and to avoid having to disclose the large negative earnings impact that would result

if spare parts were taken out of RAM.

82. The senior accountant proposed that the distribution business transfer

spare parts to the CSA business at cost (as opposed to either catalog list price or

market price), in effect shifting the recognition of the spare parts profit from one GE

aircraft engine business unit to another. On a consolidated basis, GEs profit, total costs,

and revenue over the life of the CSAs would remain the same, but the spare parts profit

would now be recognized by the CSA business on the cost percentage of completion

basis.

27


28/37

83. The senior accountant hoped this proposed change could create a positive

earnings impact sufficient to offset the large charge that would result from the exclusion

of spare parts from RAM. On November 13, 2001, the senior accountant wrote that his

proposal would allow GE to quietly eliminate spare parts from RAM.

84. On February 19 and 20, 2002, in discussions about how to account for the

internal pricing change, the senior accountant was informed by both a finance employee

and a senior accountant in GEs aircraft engines business that there were two ways to

make the change.

85. One proposed alternative would apply the change from catalog list price to

cost for existing CSAs prospectively, i.e., on a going forward basis only. This would

have the effect of (a) keeping the costs on the contracts incurred to date the same and (b)

reducing the total estimated costs, thereby generating a higher contract margin.

Application of this higher margin to the already incurred costs would generate a

cumulative catch up equal to the difference between the previously applied lower

margin and the new higher margin. GE calculated the cumulative catch-up would equal

approximately $1 billion in revenue and profits, more than enough to offset the estimated

$844 million negative impact from the elimination of spare parts from the RAM model.

86. The other alternative was to make the price change both retrospectively

and prospectively, i.e., recalculating the total costs of the contract as though the lower

price had been in effect from the start of the contract. The senior corporate accountant

was informed that doing this would result in no cumulative catch-up. While the margins

would now be greater, the total costs incurred to date would also have decreased,

28


29/37

basically resulting in a net zero impact. Application of the change retrospectively, then,

would not have generated a cumulative catch-up to offset the proposed change in RAM.

87. UnderAccounting Principles Board Opinion No. 20,Accounting Changes

(APB 20), accounting principles should be applied consistently for all periods

presented in comparative financial statements. As a result, under GAAP, GE was

required to apply any change in accounting principle, such as the internal price change,

retrospectively (in this case, from day one of the contracts at issue).

88. On March 27, 2002, senior GE corporate accountants and members of the

aircraft engines business had a conference call to discuss the matter further. On the call,

GEs corporate accountants decided to implement both the RAM change, creating a $844

million charge to revenue and earnings, and a prospective-only internal pricing change,

creating an approximately $1 billion cumulative catch-up of revenue and earnings in

the first quarter of 2002.

89. As noted above, the decision to make the internal pricing change on a

prospective-only basis did not comply with GAAP. GE never memorialized why a

prospective-only change was GAAP-compliant.

D. The Improper Creation/Use of a Reserve and GEs

Failure to Disclose the RAM or Internal Price Changes

90. As of the end of the first quarter of 2002, the impact from applying the

internal price change prospectively was estimated to increase GEs earnings by

approximately $1 billion and the impact of the RAM change was estimated to be an $844

million charge to earnings. Rather than recognizing the entire approximately $1 billion

from the internal price change, GE recognized only as much as it needed to offset the

29


30/37

impact of the RAM change ($844 million). Out of this difference, GE created a reserve

of $156 million.

91. The creation of the $156 million reserve also did not comply with GAAP.

Under GAAP, even if it had been proper for GE to recognize the approximately $1 billion

in increased revenue and earnings, GE should either have (1) recognized the entire

approximately $1 billion in the first quarter and trued up the number in later quarters

based on future analysis of the CSAs or (2) not recognized any gain on the switch until it

had completed its analysis.

92. While GE indicated that it would amortize the deferred gain in proportion

to further contract reviews, at least a portion of the reserves perhaps as much as $42

million was released over the following two quarters to offset the negative earnings

impact that GE otherwise would have experienced in those quarters due to the first

quarter internal pricing change. GEs release of the reserve to offset later period earnings

shortfalls caused by the first quarter internal pricing change did not comply with GAAP.

93. GE did not disclose either the RAM change or the effect of the internal

pricing change in any of its 2002 Commission filings.

94. On January 18, 2008, GE filed a Form 8-K with the Commission that

announced it was adjusting its financials from 2002 to 2007 due to its erroneous decision

to apply the catalogue list price to cost change on a prospective-only basis. The error

resulted in GE overstating its 2002 pre-tax earnings by $943 million, or 5.7 %, and its

2002 net earnings by $585 million, or 4.8%.

30


31/37

V. Offer or Sale of GE Securities During Relevant Period

95. Throughout the relevant period, shares of GE common stock were

continuously offered for sale, sold and purchased on the New York Stock Exchange

96. In addition, GE itself offered securities for sale at the same time its

financial statements contained materially false statements. For instance, in March 2004,

GE offered approximately 119 million shares of newly issued GE common stock for sale

to the public at $31.83. In April 2004, GE used approximately 342 million shares of

newly issued shares of GE common stock to acquire Amersham plc. In addition, in

March 2003, June 2003, January 2004 and December 2004, GE made additional

acquisitions that were paid for in whole or in part with GE common stock.

FIRST CLAIM

Fraud In Connection With The Purchase Or Sale Of Securities in

Violation of Exchange Act 10(b) and Rule 10b-5

97. Plaintiff Commission repeats and realleges paragraphs 1 through 52 and

57 through 72 above.

98. As described above, GE, acting primarily through senior corporate

accountants, engaged in knowing or reckless fraudulent activities resulting in numerous

materially false and misleading statements or omissions in connection with the January

2003 change in CP hedging methodologies and the recognition of revenues and profits in

the fourth quarters of 2002 and 2003 for the bridge financing transactions.

99. By reason of the foregoing, GE, singly or in concert with others, directly

or indirectly, in connection with the purchase or sale of securities, by the use of any

means and instrumentalities of interstate commerce, or of the mails, or any facility of any

national securities exchange: (a) employed devices, schemes, or artifices to defraud; (b)

31


32/37

made untrue statements of material fact or omitted to state material facts necessary in

order to make the statements made, in the light of the circumstances under which they

were made, not misleading; or (c) engaged in acts, practices or courses of business which

operated or would operate as a fraud or deceit upon any persons, including purchasers or

sellers of GE securities, in violation of Section 10(b) of the Exchange Act [15 U.S.C.

78j(b)] and Rule 10b-5 [17 C.F.R. 240.10b-5] thereunder.

100. The conduct of GE involved fraud, deceit, or deliberate or reckless

disregard of regulatory requirements, and resulted in substantial loss, or significant risk of

substantial loss, to other persons, within the meaning of Section 21(d)(3) of the Exchange

Act [15 U.S.C. 78u(d)(3)].

SECOND CLAIM

Fraud in the Offer or Sale of Securities Arising from Treatment of CP Hedging and

Bridge Financing Transactions in Violation of Securities Act 17(a)

101. Plaintiff Commission repeats and realleges paragraphs 1 through 52 and

57 though 72 above.

102. By reason of the foregoing allegations relating to the January 2003 change

in CP hedging methodologies and the recognition of revenues and profits in the fourth

quarters of 2002 and 2003 for the bridge financing transactions, GE, directly or

indirectly, by use of the means or instruments of transportation or communication in

interstate commerce or by the use of the mails, in the offer or sale of securities,

knowingly or recklessly: (a) employed devices, schemes or artifices to defraud; (b)

obtained money or property by means of untrue statements of material fact or omissions

to state material facts necessary in order to make the statements made, in the light of the

circumstances under which they were made, not misleading; or (c) engaged in

32


33/37

transactions, practices or courses of business which operated or would operate as a fraud

or deceit upon certain purchasers, including purchasers of GE securities.

103. The conduct of GE involved fraud, deceit, manipulative or deliberate or

reckless disregard of regulatory requirements and directly or indirectly resulted in

substantial losses to other persons.

THIRD CLAIM

Non-Scienter Fraud in the Offer or Sale of Securities Arising from

Spare Parts Internal Price Changes in Violation

of Securities Act Sections 17(a)(2) and (3)

104. Plaintiff Commission repeats and realleges paragraphs 1 through 7 and 73

through 96 above.

105. By reason of the foregoing allegations relating to GEs treatment of its

spare parts internal price change GE, directly or indirectly, acting negligently, by use of

the means or instruments of transportation or communication in interstate commerce or

by the use of the mails, in the offer or sale of securities: obtained money or property by

means of untrue statements of material fact or omissions to state material facts necessary

in order to make the statements made, in the light of the circumstances under which they

were made, not misleading; or engaged in transactions, practices or courses of business

which operated or would operate as a fraud or deceit upon certain purchasers, including

purchasers of GE securities.

FOURTH CLAIM

Reporting of False and Misleading Information in Annual Statements

in Violation of Exchange Act 13(a) and Rules 12b-20 and 13a-1

106. Plaintiff Commission repeats and realleges paragraphs 1 through 96

above.

33


34/37

107. By reason of the foregoing, GE reported misleading information in its

Forms 10-K for the years ended December 31, 2002, December 31, 2003 and December

31, 2004 in violation of Section 13(a) of the Exchange Act [15 U.S.C. 78m(a)] and

Rules 12b-20 and 13a-1 thereunder [17 C.F.R. 240.12b-20 and 240.13a-1].

FIFTH CLAIM

Reporting of False and Misleading Information in Quarterly Reports



above.

109. By reason of the foregoing, GE reported misleading information in its

Forms 10-Q for the quarters ended March 31, 2002, June 30, 2002, September 30, 2002,

March 31, 2003, June 30, 2003, September 30, 2003, March 31, 2004, June 30, 2004,

September 30, 2004, March 31, 2005, June 30, 2005, September 30, 2005, March 31,

2006, June 30, 2006 and September 30, 2006 in violation of Section 13(a) of the

Exchange Act [15 U.S.C. 78m(a)] and Rules 12b-20 and 13a-13 thereunder [17 C.F.R.

240.12b-20 and 240.13a-13].

SIXTH CLAIM

Reporting of False and Misleading Information in Forms 8-K



above.

111. GE reported misleading information in earnings releases issued in

connection with Forms 8-K filed with the Commission on or about April 11, 2002; July

12, 2002; September 17, 2002; January 17, 2003; April 11, 2003; January 16, 2004; April

8, 2004; July 9, 2004; October 8, 2004; January 21, 2005; April 15, 2005; July 15, 2005;

34


35/37

October 14, 2005; January 20, 2006; April 13, 2006; July 14, 2006; October 13, 2006;

January 19, 2007; April 13, 2007; and July 13, 2007 in violation of Section 13(a) of the

Exchange Act [15 U.S.C. 78m(a)] and Rules 12b-20 and 13a-11 thereunder [17 C.F.R.

240.12b-20 and 240.13a-11].

SEVENTH CLAIM

Failure to Keep Accurate Books and Records

in Violation of Exchange Act 13(b)(2)(A)


above.

113. By reason of the foregoing, GE failed to maintain and keep books,

records, and accounts which, in reasonable detail, accurately and fairly reflected the

transactions and dispositions of GEs assets in violation of Section 13(b)(2)(A) of the

Exchange Act [15 U.S.C. 78m(b)(2)(A)].

EIGHTH CLAIM

Failure to Maintain Internal Controls

in Violation of Exchange Act 13(b)(2)(B)


above.

115. By reason of the foregoing, GE failed to devise and maintain a system of

internal accounting controls sufficient to provide reasonable assurances that the

companys transactions were recorded as necessary to permit preparation of financial

statements in conformity with GAAP or other criteria applicable to such statements and

to maintain accountability for assets in violation of Section 13(b)(2)(B) of the Exchange

Act [15 U.S.C. 78m(b)(2)(B)].

35


36/37

PRAYER FOR RELIEF

WHEREFORE, Plaintiff Commission respectfully requests that this Court issue a

Final Judgment:

I.

A. Permanently enjoining GE from violating, directly or indirectly:

1. Section 17(a) of the Securities Act [15 U.S.C. 77q(a)];

2. Section 10(b) of the Exchange Act [15 U.S.C. 78j(b)] and Rule 10b-5

[17 C.F.R. 240.10b-5] thereunder;

3. Section 13(a) of the Exchange Act [15 U.S.C. 78m(a)] and Rules 12b-

20, 13a-1, 13a-11, and 13a-13 thereunder [17 C.F.R. 240.12b-20, 240.13a-1, 240.13a-

11, and 240.13a-13; and

4. Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act [15 U.S.C.

78m(b)(2)(A) and 78m(b)(2)(B)].

II.

Requiring GE to pay civil money penalties pursuant to Section 21(d)(3) of the

Exchange Act [15 U.S.C. 78u(d)(3)] in an amount to be determined by the Court.

III.

Ordering such other and further relief as this case may require under equity and

the Court deems appropriate.

36


37/37

Respectfully submitted,

SECURITIES AND EXCHANGE

COMMISSION,

By its attorney,

_________________________________Luke T. Cadigan (Fed. Bar No. phv0552)

Senior Trial Counsel33 Arch Street, 23rd FloorBoston, Massachusetts 02110(617) 573-8919 (tel)(617) 573-4950 (fax)

Local Counsel:

_________________________________John B. Hughes (Fed. Bar No. CT-05289)Assistant United States AttorneyChief, Civil Division

United States Attorney=s Office

Connecticut Financial Center

157 Church Street, 23

rd

FloorNew Haven, CT 06510(203) 821-3802 (tel)(203) 773-5373 (fax)

Dated: August 4, 2009

Securities and Exchange Commission v. General Electric Company

Documents

Transcript of Securities and Exchange Commission v. General Electric Company